Tuesday, June 24, 2008

Lane Co. investing near urban transit

Having just bashed Lane Co., I feel the need to highlight some of their positive aspects. Lane has bought 710 Peachtree (ABC subscription required), a high-rise apartment building a few blocks from MARTA in the heart of Midtown. It is also a mixed-use building, housing Baraonda.

They bought the 533-unit building for $43M, with $8 million planned in capital renovations. The price also includes 34,000 sf in retail space, so getting an accurate rate for the units is difficult. But if I make some basic assumptions about cap rates and rental space, it looks like a pretty good buy.

I always felt that the units were too small and too expensive for my tastes, but if others were willing to pay, more power to them. It is still a value play compared to buildings like Post Biltmore and Post Parkside, and there is probably a high up-side to the value-add components that Lane seems to be looking at with their capital improvements.

Lane also says that equity partners have pushed for investments near transit, which is probably smart. As investors gravitate towards investments near transit and are willing to pay a premium for that (because they expect higher growth potential from these units), developers will be more interested in developing such properties (because rents will be higher and because buyers will prefer this building type, making it easier to sell).

All of this of course drives off the belief that renters will want to live closer to transit, which is not an unreasonable assumption in the current economic climate.